IESET.
Hypotheses·distribution·tax_inequality_reagan_1986_base_broadening_neutrality

The 1986 Tax Reform Act (TRA86) — which paired a top-rate cut from 50 to 28 percent with substantial base-broadening (passive-loss limits, AMT expansion, capital-gains rate harmonisation) — produced a smaller persistent top-1 income share response than ERTA 1981 once the one-off 1986-1988 realisation spike from capital-gains reclassification is removed.

A clean supported finding undermines the "rate cut alone drives top share" reading and supports the public-finance consensus that base composition matters.

REFUTEDengine/runs/tax_inequality_reagan_1986_base_broadening_neutrality

REFUTED — shape=ITS, sign + OPPOSITE claim -, mean_gap=+1.194, z=+3.4

confidence cueThis test cuts against the claim as written or misses its pre-declared threshold.

policy briefNeeds review

In ordinary language

Over a long period, do more market-oriented institutions translate into higher income or productivity, once the comparison looks beyond a single success story?

plain answer

The data did not support the prediction. shape=ITS, sign + OPPOSITE claim -, mean_gap=+1.194, z=+3.4

why it matters

Distributional claims often sound morally clear but are empirically complex. This test asks whether the proposed channel explains real differences across places.

how the test works

It compares 1 country or place units from 1975 to 1995, using a event study design, with fixed effects for year.

what was measured
What changed
  • Post tra86 indicator
  • Capital gains realisation dummy
What we checked
  • Top 1pct pretax income share
  • Top 0p1pct pretax income share
what this does not prove

A single test is not the whole truth. It narrows the claim under a specific sample, time period, and method. Strong policy conclusions need the pattern to survive nearby tests, alternative data, and serious objections.

verification

0 input datasets, 0 unresolved missing series, provenance status: no input vintages recorded.

Results

engine/runs/tax_inequality_reagan_1986_base_broadening_neutrality
1007550250197519851995USA
illustrative sketch · run pending
No coefficients yet. When the model fires, this chart will show top_1pct_pretax_income_share across 1 sampled countries over 1975–1995.
The shapes above are stylised — none of the lines are real data.
Placeholder for tax_inequality_reagan_1986_base_broadening_neutrality. Published chart will be generated from engine/runs/tax_inequality_reagan_1986_base_broadening_neutrality/chart_data.json.

Pre-registration

pre-registered
first-spec commit 098ce96 · 2026-04-30T12:57:33Z
run generated · 2026-04-30T12:29:39Z

The 1986 Tax Reform Act (TRA86) — which paired a top-rate cut from 50 to 28 percent with substantial base-broadening (passive-loss limits, AMT expansion, capital-gains rate harmonisation) — produced a smaller persistent top-1 income share response than ERTA 1981 once the one-off 1986-1988 realisation spike from capital-gains reclassification is removed. A clean supported finding undermines the "rate cut alone drives top share" reading and supports the public-finance consensus that base composition matters.

Falsification criterion — what would disprove this

set before the run · honoured after

This hypothesis is considered falsified if:

SUPPORTED if the top-1 pretax share residualised on a 1986-1988 capital- gains-realisation dummy shows no statistically significant increase post 1988 (p<0.10) AND the post-1988 trend slope is within 0.05pp/yr of the pre-1986 trend slope. REFUTED if the residualised post-1988 trend slope exceeds the pre-1986 slope by more than 0.10pp/yr at p<0.10.

formal test & threshold
test:      US time-series 1975-1995 with structural-break test at 1988Q1 after purging 1986-1988 realisation spike. Newey-West HAC SEs.

Method

Template
event_study
Fixed effects
year
Clustering
year
Sample
1 countries · 1975 – 1995
Evidence type
associational

Event study with structural break at 1988Q1; explicit handling of 1986- 1988 realisation spike via dummy. Newey-West HAC SEs. Robustness with local_projections of top-share level on 1986 and 1988 break dummies separately.

Data

VariableSourceTransform
top_1pct_pretax_income_share
outcome
owid:top-1-share-of-total-incometier 2
level
top_0p1pct_pretax_income_share
outcome
owid:top-0-1-share-of-total-incometier 2
level
post_tra86_indicator
treatment
constructed:indicator = 1 for year >= 1988 (post-realisation-window)tier 5
indicator
capital_gains_realisation_dummy
treatment
constructed:indicator = 1 for years 1986-1988tier 5
indicator
top_marginal_income_tax_rate
treatment
owid:top-marginal-income-tax-ratetier 2
level
log_real_gdp
control
fred:GDPC1tier 1
log
equity_index_real_yoy
control
fred:SP500tier 1
real_yoy_pct_change

● ready  · ● pending  · ● reconstruct-needed

Detailed result card

Result card — tax_inequality_reagan_1986_base_broadening_neutrality

Verdict: REFUTED — shape=ITS, sign + OPPOSITE claim -, mean_gap=+1.194, z=+3.4

Pre-registration

  • Claim: The 1986 Tax Reform Act (TRA86) — which paired a top-rate cut from 50 to 28 percent with substantial base-broadening (passive-loss limits, AMT expansion, capital-gains rate harmonisation) — produced a smaller persistent top-1 income share response than ERTA 1981 once the one-off 1986-1988 realisation spike from capital-gains reclassification is removed. A clean supported finding undermines the "rate cut alone drives top share" reading and supports the public-finance consensus that base composition matters.
  • Falsification rule: SUPPORTED if the top-1 pretax share residualised on a 1986-1988 capital- gains-realisation dummy shows no statistically significant increase post 1988 (p<0.10) AND the post-1988 trend slope is within 0.05pp/yr of the pre-1986 trend slope. REFUTED if the residualised post-1988 trend slope exceeds the pre-1986 slope by more than 0.10pp/yr at p<0.10.
  • Falsification test: US time-series 1975-1995 with structural-break test at 1988Q1 after purging 1986-1988 realisation spike. Newey-West HAC SEs.
  • Event year: 1986

Estimate

  • shape: single_country_its
  • country: USA
  • event_year: 1986
  • n_pre: 11
  • n_post: 10
  • pre_trend_slope: 0.18372727272728645
  • pre_trend_intercept: -352.81818181820915
  • pre_residual_sd: 0.3542083362295996
  • end_year: 1995
  • end_year_actual: 14.52
  • end_year_counterfactual: 13.717727272727302
  • end_year_gap: 0.8022727272726975
  • mean_post_gap: 1.1940454545454748
  • z_end: 2.2649741556411604
  • z_mean: 3.3710258410504736
  • post_period_years: [1986, 1995]

Variables resolved

  • owid:top-1-share-of-total-income → top_1pct_pretax_income_share (outcome, publisher=owid, n=3294)
  • owid:top-marginal-income-tax-rate → top_marginal_income_tax_rate (treatment, publisher=owid, n=590)
  • fred:GDPC1 → log_real_gdp (controls, publisher=fred, n=79)
  • fred:SP500 → equity_index_real_yoy (controls, publisher=fred, n=11)

Variables missing data

  • owid:top-0-1-share-of-total-income (outcome, name=top_0p1pct_pretax_income_share)
  • constructed: indicator = 1 for year >= 1988 (post-realisation-window) (treatment, name=post_tra86_indicator)
  • constructed: indicator = 1 for years 1986-1988 (treatment, name=capital_gains_realisation_dummy)

Generated by scripts/run_event_study.py at 2026-04-30T12:29:39+00:00

Notes

Tax-inequality candidate, swarm-S6 batch 1. Companion to ERTA spec; the point of the pair is that the inequality elasticity differs sharply when base-broadening is done concurrently.

Authored framework. Read the transparency note.